Joe Harris, former chief financial officer for the City of Detroit, was appointed by the state to take over and fix the finances in Benton Harbor in 2010. As emergency financial manager, he caused a stir around the state when in 2011 he stripped city officials of their powers. Harris removed members from city departments such as the planning commission and a brownfields authority board and put in others, including appointing himself.
He sparred non-stop with elected officials over his authority. In 2013, as Harris expected, he was replaced. The financial emergency and lingering deficit of more than $2 million deficit was deemed resolved earlier this year and a transition advisory board appointed to oversee elected officials’ budget decisions in Benton Harbor.
In email responses to Bridge, Harris bitterly describes the power struggle involved in emergency management, saying it cost him the job. He agrees that locals should be involved in reviving a broke city, but said an entrenched political culture will stand in the way of progress.
Bridge: Describe the role of elected officials while you were emergency manager. How did this help the city?
Harris: The role of the elected officials in Benton Harbor was to disrupt the original emergency manager in an attempt to cause the state's intervention to result in failure or, at a minimum, discredit the EM. The elected officials succeeded in having the original EM replaced by someone whose mandate was to accommodate the wishes of the elected officials and to return authority to the elected officials.
Bridge: Michigan has seen five municipalities exit deficit under an emergency manager. After the emergency manager left, the city/school district then fell into deficit again under elected officials’ oversight.
Is it important to include local officials in reforming a municipality’s financial structure during receivership – why or why not?
Harris: Although it is advisable to include local officials in reforming a municipality's financial structure during receivership, it cannot be overstated that receivership is unlikely to change a culture of appointing, employing, and contracting with unqualified and uncompetitive individuals and firms. Nor are lessons that may be learned by elected officials during a financial emergency likely to be communicated to their successors. Consequently, as long as there is a continuation of the culture, there is likely to be a continuation of the behavior.
It must also be recognized that there may be underlying reasons for a city/school district to incur continuous deficits that may be beyond the control of the elected officials. For example, retiree health care costs could escalate beyond the capacity of the municipality to pay. Or pension costs and other contractual commitments may not be adequately revised or terminated during the receivership. Or revenue sources such as state revenue sharing, property taxes, gaming taxes and income taxes could decline precipitously.
Unless the long-term effects of the pension and health care components of labor contracts are reasonable, future administrations may have their hands tied if there’s a hole in the dike.
Bridge: Do you favor a transition advisory board succeeding the emergency manager? Why or why not?
Regardless of the level of involvement of the elected officials, the "heavy lifting" (i.e., needed changed that politicians often will not make) will invariably be performed by the emergency manager during the receivership. Consequently, for all intents and purposes, there can be no complete transition until the EM is gone. A transition advisory board will not only facilitate the transition, but also will allow state officials to be more aware of the specific issues that may be detrimental to the long-term financial viability of the municipality.
Bridge: What else should people know?
Harris: Changes to the Benton Harbor Police and Fire collective bargaining agreements resulted in savings to the city of over $1 million out of a $7 million General Fund budget. These changes would never have been possible, let alone attempted, without the authority of a state-appointed emergency manager. The changes to the collective bargaining agreements were the primary reason the city was able to eliminate its structural deficit within three years, with no need for interim financing despite the city's dire financial condition.
Bridge: So, in summary, what should Michigan do to try to prevent municipalities from falling back into financial emergency?
Harris: In summary, Michigan should act quickly rather than to allow municipalities to continue down the road to ruin when a financial emergency is evident.
Detroit's financial emergency existed in 2002 when [then] Mayor Kwame Kilpatrick issued bonds to balance the city's budget. During his and Mayor Bing's terms, the city borrowed three quarters of a billion dollars while Lansing watched. Lansing consistently yielded to the vocal minority until the city was not only broke, but could no longer borrow its way out of its hole.